Real Estate News and Market Moves Week 108

This past week, I visited IMN’s latest conference in Newport, RI and gathered valuable insights on real estate today.  

Market Outlook & Economic Conditions 

• Resilience in Markets: Despite volatility, markets show hidden strength. Equity markets remain inherently unstable. 

• Risks of Holding Cash: Staying idle with cash is risky due to inflation and lost opportunities. 

• Distress vs. Stress: Current conditions indicate “stress” rather than systemic “distress,” especially in multifamily. 

• Sunbelt Outlook: Expect potential challenges in cities like Nashville and Huntsville over the next 24–36 months. 

Real Estate Investment Insights 

• Opportunity Zones: Attractive due to long-term and flexible capital. Rural areas expected to benefit from OZ 2.0 incentives. 

• Fix & Flip: Substantial segment of residential market (300k–500k of 4M homes sold annually). Favorable loan model (60% LTC / 40% LTV). 

• Retail: Limited new supply since 2015, currently generating strong yields. 

• Industrial: Shallow bay industrial thriving; 80% of tenants under 50k sq ft. 

• Multifamily: Expenses increasing post-stabilization; B+/A- properties ideal; smaller units underperforming. 

Capital & Fundraising Trends 

• Fundraising Environment: Raising capital takes longer now (18–20 months vs. 12 pre-pandemic). 

• Core & Core Plus Funds: More difficult to raise due to capital return issues and market shifts. 

• LP Interests: Growing interest in senior housing; desire for more control and alignment with sponsors. 

Tax-Advantaged Strategies 

• DSTs & 721 Exchanges: Offer passive investing benefits and liquidity control, especially attractive to aging investors. 

• Heir Transitions: “Silver tsunami” of property transfers looming, often triggered by health issues or estate planning. 

Fund Launch & Sponsorship 

• Key Priorities: Compliance, fiduciary alignment, understanding team motivation. 

• Strategy Pivoting: Need to adjust approach amid changing market conditions (e.g., Blackstone pivoting globally). 

• Alignment: Internally (firm level) and externally (deal level) alignment is crucial. 

Capital Structures & Deal Mechanics 

• Co-GP Models: Can fund up to 70–90% of equity; important to pre-plan capital calls and structure them senior to existing equity. 

• Capital Markets Role: Use professionals to help source equity and manage structure complexities. 

• Risk Trends: Flexibility is essential; unexpected operator issues (e.g., with workforce housing eviction laws); rising insurance costs. 

Acquisition & Due Diligence 

• Speed to Close: Competitive edge comes from quick closing capabilities. 

• Debt Considerations: Fixed-rate loans limit exit flexibility; credit terms help manage volatility. 

• Supply Pressure: Markets like Nashville facing excessive short-term multifamily supply. 

AI and Demographics 

• AI Impact: Most deflationary force of our time; skepticism similar to past tech revolutions. 

• Demographic Shifts: Greater desire for space; shift away from smaller units; immigration will influence major markets like CA, TX, FL, AZ.